Royal Commission Punishing Banks or Shareholders?

Do you like being ripped off?

I didn’t think so.

But that’s exactly what the big banks of Australia are being accused of.

The banks’ reputations are in tatters, but will that be all the punishment they receive? And what will it mean for their shareholders?

The Banking Royal Commission has uncovered some of the biggest deceptions undertaken by the banks and now AMP.

And the deception of the big banks and AMP was far deeper than first imagined. Customers have told the royal commission, as reported by the ABC, that a financial advice firm impersonated a customer to access her superannuation fund.

AMP charged customers in what’s been dubbed ‘fee-for-no-service financial advice’. And they even got past ASIC to do it!

The big four banks have handed out inappropriate loans so that their employees could reach the incentives promised for hitting their targets. Customers who had passed away were still being charged by some of the banks.

Fraud claims sometimes took five years to refund to customers.

The banks have been found out to have misled customers regarding financial advice.

Some have even lost all their superannuation savings.

The fraud and deception has been endless, it seems.

There’s been a lot of uproar by the media, pollies and Australians alike. As more and more revelations come out about just how bad the financial industry’s behaviour has been, minds are turning to what punishment there should be for these institutions.

Journalists and financial commenters have increasingly called for harsh punishments this week, particularly at the big end of institutions. And while the words ‘jail time’ have been thrown around, Australian Shareholders Association CEO Judith Fox doesn’t believe that’ll happen. ‘We just don’t see people going to jail,’ she said.

Just another slap on the wrist

In the past, situations such as the one the banks now find themselves in have been dealt with by departures, small fines, and a loss in reputation.

As Ms Fox states:

The philosophy out there in the marketplace with regard to white collar crime in Australia is the bigger you are the safer you are.

There is a positive to come out of the royal commission, though. Well, the timing of it anyway. According to Peter Morgan, a former fund manager:

One positive from the royal commission is it’s occurring before an asset price collapse…

So financial institutions are in a strong enough position to make the necessary profound changes.

Some bank leaders seem prepared to take on ownership of their wrongdoing, such as NAB chairman Ken Henry states:

There is something real here for which we have to take responsibility. There are instances of poor conduct, poor treatment of customers and these are matters for which we have to hold ourselves accountable.

But simply stating you need to take responsibility for your actions isn’t enough. As Ms Fox states:

‘…so far what we’ve seen coming out of the commission it certainly looks like some of the financial services sector have set up parts of their business to be ripping people off.’

If you’ve been keeping up with the stock market throughout the royal commission, you would have noticed that when one of the banks or AMP was on the stand and the revelations of their wrongdoings seeped out, their stocks began to fall.

No surprise, really.

The banks’ and AMP’s leadership may have initially believed that there might be only minor consequences. It remains to be seen how much punishment will fall directly on their heads. But for now, shareholders are those suffering the most for their actions.

That’s leading to shareholders putting pressure on their boards — and rightly so.

It’s not a small segment of society, either. Thanks to our superannuation system, most Australians are shareholders. And with the big four banks making up such a massive portion of our market, the proportion of Australians with an interest in our financial industry is among the largest in the world.

The question is — who will suffer the most for the financial industry’s sins? The individual advisors who broke the rules? The leaders who are accused of encouraging them, and turning a blind eye? Or simple shareholders like you and I?

If you’re concerned about the big banks and what they may mean for your money or you just want to find out more about how you could protect yourself during market volatility, then check out Vern Gowdie’s The Gowdie Letter here

This week in Money Morning

In Monday’s Money Morning, Harje opened up the week with the seventh day of the Extreme Small-Cap Profits email course. He discussed the importance of cash flow for a business. And while cash flow is important for all companies, that includes blue chip companies, it is extremely important for small-caps. Harje explains the benefits of investing in debt-free small-caps, however there is a case for small-caps with debt, just not too much. To find out more, go here.

In Tuesday’s Money Morning, Harje focused on the timing of selling your small-cap stocks. While it is important to know when to buy in to small-cap stocks, it’s also important to know when to sell. There are many factors to consider once you’ve bought the stock. Buying the stock doesn’t mean your job is done. Once bought, you have to also decide when you should sell, as you don’t want to limit your potential gains, or increase your losses. To find out more, go here.

In Wednesday’s Money Morning, we’re now on to day nine of Harje’s Extreme Small-Cap Profits email series. Here, Harje turned towards the economy and how it may impact your stocks. And it all has to do with a strong economy versus a declining economy. When the economy’s up: it’s a good time for small-cap investors. When the economy’s down: it usually has the opposite effect. To find out more, click here.

In Thursday’s Money Morning, Harje continued his series on small-cap stocks. Harje delved into two small-cap stocks. And while he didn’t give much away regarding the financial, industry and potentials of these stocks, he did what he could to prove the legitimacy of investing in small-caps. If you would like to find out the stocks he discussed, and more about what tool you need to become a small-cap investor, go here.

In Friday’s Money Morning, Harje was on to day 11 of his email course. Here, he discussed the value of having money. How to get to a point where you are able to look after yourself and your family comfortably. And it has everything to do with the share market. In the second last day of his email course, Harje explains where he believes you should be investing your money, and the nation in which you could invest. To find out more, go here.

Kind Regards,

Alana Sumic,
Editor, Money Weekend

Alana Sumic is part of the editorial team here at Money Morning. She contributes to bringing you Money Morning each day, along with all of Fat Tail Investment Research’s many other publications.

As the Editor of the weekend edition of Money Morning Alana brings you a summary of the news for the week, and her own take on the week’s most important story in markets. She is also a writer and editor for Fat Tail Investment Research’s political publication, The Australian Tribune.

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